Retirees' Health Costs Keep Rising

Dec. 14, 2004 - Some of America's largest employers saw the cost of covering medical care for former workers go up about 25% between 2003 and 2004, continuing a trend that analysts warn is threatening the future existence of private health insurance for millions of retirees.

In a pattern that has now become familiar to workers and employers, nearly nine in 10 large firms say they plan to raise the amount of money retirees must pay out of pocket for health care next year in an effort to control costs.

But a growing number also plan to eliminate health care coverage for future retirees altogether. Eight percent say they stopped the coverage entirely last year, though as many as 11% also say that they are likely to do so next year, according to a survey of 333 firms employing 1,000 workers or more released Tuesday by the Kaiser Family Foundation.

The trend could have significant effects on the 21 million retired Americans and dependents who have at least some of their health care paid by a former employer. While 12 million of those workers also have Medicare, at least 3 million are early retirees below 65 with no other health care coverage.

Analysts say no more than 1% of companies are threatening to stop providing health insurance for those already retired. But escalating costs are likely to make post-retirement medical coverage harder to come by for new hires and also for mid-career workers who move to switch jobs.

"Current retirees are largely protected," says Tricia Neuman, vice president of the Kaiser Foundation and one of the study's authors. "New hires are more vulnerable."

Analysts say the survey portends continuing pressure on employers to find ways to cut the cost of covering retirees' medical care. More than 80% of firms surveyed say they had either already reached company-mandated spending limits for health care or would likely hit them within the next three years.

"I doubt that our young kids ... are going to have retiree health coverage in the future," says Drew Altman, PhD, the Kaiser Foundation president.

Retirees over 65 now pay an average of $209 per couple each month for private health insurance supplementing Medicare. Those under 65 with no Medicare typically pay $387 per month, while their former firms pay an average of $737 per month.

The survey was conducted between May and September 2004. Companies surveyed represent 20% of the Fortune 500, including many firms employing 10,000 or more workers.